Swedish households continue to take increasingly larger loans. More new mortgagors than in previous years had both a high loan-to-income ratio and a high loan-to-value ratio. Higher inflation and rising interest rates mean that mortgagors have smaller margins in their personal finances. This decreases the consumption capacity at the same time as the mortgagors’ ability to repay their loan is impaired.
FI has been tasked with contributing to a stable financial system, with well-functioning markets and strong consumer protection, and preventing financial imbalances. Loans can pose risks for individual households, banks, financial sta-bility and macroeconomic growth. We therefore monitor the ongoing development in household loans, for which The Swedish Mortgage Market provides an important basis. Over the past two decades, Swedish households have increased their borrowing every year. Their loans have increased faster than their disposable income, in part driven by low interest rates and rising housing prices. This trend was slowed after the two amortisation requirements that were introduced in 2016 and 2018, but it then picked up speed again during the coronavirus pandemic.
Compared to last year's survey, the average market value of the home new mortgagors purchased increased by 18 per cent. The average loan-to-income ratio increased in 2021. The share of new mortgagors with a loan-to-income ratio of more than 450 per cent before tax increased to more than 14 per cent last year. This means that it reached approximately the same share as before FI introduced the stricter amortisation requirement in 2018. However, the average loan-to-value ratio, which increased between 2017 and 2020, decreased in 2021. This reflects that housing price increased very quickly.
Most new mortgagors have sufficient margins for servicing their loans even if they were to experience weaker finances. But since more new borrowers have taken larger mortgages in relation to their income, they are more sensitive to higher interest rates than they were before. At the same time, more borrowers than before have a majority of their mortgages fixed for more than one year. This counteracts the increased interest rate sensitivity in the short term. At an interest rate of 7 per cent, 11 per cent of the new mortgagors would experience a deficit, compared to 8 per cent in 2020. One contributing factor is that the banks have lowered the requirements in the credit assessment by using a lower stressed income rate. The highest was the share with a deficit among those with a loan-to-income ratio of more than 450 per cent. Just over one-third of this group would experience a deficit at an interest rate of 7 per cent.